Calling it a flawed deal but one that will save lives, state Attorney General J. Joseph Curran Jr. announced yesterday that Maryland would accept a tobacco settlement that will pay the state more than $4.2 billion, take cigarette ads off billboards and taxis, ban Joe Camel-style cartoons and finance anti-smoking campaigns.
Flanked by Gov. Parris N. Glendening and Baltimore attorney Peter G. Angelos, whose law firm is likely to collect several hundred million dollars for handling the state's lawsuit, Curran said he had tried but failed to persuade several other states to hold out for a better deal.
"We concluded that if Maryland held out, we'd have no other ally," he said. Under those circumstances, Curran said, the state could not expect a better settlement and did not want to gamble on taking the case to trial in April.
By yesterday's noon deadline, all 46 states that had not previously settled with the industry had signed on to the deal, valued at $206 billion and the largest legal settlement in world history.
Tobacco executives considered the deal a triumph, ending the major legal threat to the industry for a sum that will be covered by a 35-cent increase in the price of a pack of cigarettes. Analysts said they expected tobacco stocks to move up.
Public health groups had urged rejection of the agreement because of what they saw as gaping loopholes -- allowing tobacco signs of up to 14 square feet on stores; allowing each company to sponsor one sporting event per year and to sell cigarette brand-name merchandise at the events; and a ban on similar future lawsuits by states or localities.
But yesterday the critics mostly muted their cries, declaring the settlement one more step in the battle against tobacco. Maryland anti-tobacco activists praised Curran and Deputy Attorney General Carmen M. Shepard for fighting to make the deal stronger.
"Unfortunately, this settlement doesn't go as far as we hoped," said Dr. Robert K. Brookland, a radiation oncologist and past president of the American Cancer Society in Maryland. "We have much more to do."
Anti-tobacco forces are shifting their efforts to the General Assembly, pushing to raise the state's 36-cent tax on a pack of cigarettes by $1.50 to price cash-poor teens out of the market.
Glendening, sporting a blue "Support the Tobacco Tax Increase" sticker, reiterated his support for raising the tax. Lawmakers were divided over whether the settlement would weaken that push.
Sen. Leo E. Green, a Prince George's Democrat, said he was optimistic that the settlement "is going to raise the consciousness level."
But Republican leaders argued that a higher tobacco tax would be a tough sell when the state has the largest surplus in a decade.
"The idea that we would then want to create a new tax is just a ludicrous proposal at this time," said Del. Robert L. Flanagan, a Howard County Republican and the House minority whip.
The settlement will pay Maryland $54 million the first year, with the first payment set for next June, Glendening said. The annual payments will rise quickly to $190 million in 2003 before leveling off at about $180 million.
Though the payments have often been described as being spread over 25 years, the settlement actually continues them indefinitely, though they will be reduced if national cigarette sales fall. Economists have calculated the value of the first 25 years of the state's deal to be at least $4.2 billion in today's dollars, or about one-fourth of the state's annual budget. Payments will be increased by a minimum of 3 percent per year to cover inflation.
Maryland is also expected to receive a delayed bonus payment of $500 million to $1 billion, with the exact amount to be set by a panel of retired attorneys general, in recognition of its early filing and relatively strong case. That money will be paid starting in 2008.
State lawmakers predicted considerable wrangling over the windfall in the General Assembly. The governor vowed again yesterday to press the legislature to earmark most of the money for anti-smoking programs, education and children's health.
He said he wants to build and renovate schools, reduce class size and try to reduce Maryland's infant mortality rate.
Looking for tax cuts
But some Republican legislators said they would push for cutting taxes or reducing the state's capital debt. And special interest groups are already lining up their appeals.
"Everybody in the world is going to have some special way to spend it," said House minority leader Robert H. Kittleman.
Angelos, who bought the Orioles with millions earned suing asbestos companies, contracted in 1996 to finance and litigate Maryland's case in return for 25 percent of any recovery. That was the best deal offered to the state by any law firm bidding for the case.
Last spring, with odds of a settlement growing, the General Assembly cut Angelos' fee in half, to 12.5 percent of any money recovered. Curran said he believes Angelos has a legal right to collect that fee -- probably more than $600 million -- from Maryland's payments.
But Angelos said yesterday that he will take advantage of a settlement provision that allows him to collect his fee from the tobacco industry rather than from Maryland's settlement funds. The catch is that he must submit his fee request to arbitration by a three-member panel -- one representative appointed by the tobacco industry, another by a group of private tobacco lawyers and a third by Angelos himself.
Angelos could request the equivalent of 25 percent, or more than $1 billion, since his original contract would have paid that much. But he risks receiving less than the $600 million he could collect from Maryland's money.
Yesterday, he left himself the option of returning to the state for more money if he does not feel the fee he receives in arbitration is adequate.
"Our goal is to make sure the tobacco industry pays our fee," Angelos said. But he added, "We don't relinquish any rights under our contract."
Angelos defended his fee, saying that when he signed the contract, the case promised years of costly, arduous litigation with no guarantee of any recovery. He said his firm has spent $10 million on the case apart from lawyers' labor.
Of the possibility of a more than $1 billion fee, he said: "That may seem like an unbelieveable sum today. But back then [when the contract was signed in 1996] it was a very welcome proposition to the Board of Public Works."
A four-year process
Yesterday's settlement agreement is the culmination of a xTC process begun in Mississippi four years ago, when a handful of small-town Southern lawyers came up with a strategy to penetrate the tobacco industry's seemingly impervious legal armor.
For decades, the industry had defeated dozens of smokers' lawsuits by pointing out to jurors that the smokers lit up voluntarily -- and after 1966, despite an explicit health warning on every pack.
The new idea was for the states to file suit to recover billions spent to pay for the smoking-related illnesses of Medicaid patients. The states had not chosen to smoke, so the you-did-it-to-yourself defense did not apply.
When Mississippi became the first state to file a Medicaid suit in May 1994, many legal experts considered the case a long shot. Even when Maryland became the eighth state to file suit in May 1996, tobacco industry lawyers and many outside experts said the state was tilting at windmills.
"Most people thought we were on a fool's mission," Angelos recalled.
But the lawsuits' odds steadily improved. Industry whistle-blowers emerged with damning documents in hand. Liggett Group, a tiny cigarette maker, signed a separate peace with the states and agreed to provide more documents and testimony. Finally, early last year, executives of tobacco giant Philip Morris opened settlement negotiations.
Legislation defeated
In June 1997, a group of attorneys general announced a proposed settlement that became the basis for legislation in Congress. But the bill, sponsored by Arizona Republican Sen. John McCain, faltered and died last spring in the face of a huge publicity campaign by the tobacco industry.
As another group of attorneys general quietly began a new round of talks last summer, Maryland stayed out of the talks and prepared its case. As with the first four states to settle, Mississippi, Florida, Texas and Minnesota, Maryland officials hoped to get a better settlement on the eve of trial.
But many other states had done little to prepare their cases or had not filed at all, and they were eager to join the settlement announced Monday. States seen as having relatively strong cases, including Maryland, Massachusetts, Michigan and Wisconsin, finally concluded they could not afford to pass up the deal.
Pub Date: 11/21/98